SEC Sends Strong Enforcement Message by Levying Significant Penalty on Computer Sciences Corp.

The Securities and Exchange Commission (SEC) fined Computer Sciences Corporation $190 million for “manipulating financial results” and concealing significant problems with one of its largest contracts. Civil charges were also brought against eight former executives of the company. The SEC’s inquiry into Computer Sciences lasted more than four years and largely focused on accounting fraud. Computer Sciences Corp. agreed to this penalty, which was primarily a response to financial statement fraud that took place from 2009 to 2012.

Computer Sciences Corp. is a large multinational technology company that has government contracts globally. While the settlement between the government agency and the “information technology company” was reached at the end of last year, the deal was suddenly threatened in the past month by legal procedural failures and internal conflict within the SEC. The SEC was forced to reduce at least some of the civil penalties against company executives as a result of a missed legal deadline for bringing certain charges.

In recent weeks, the SEC nearly succumbed to political feuds that jeopardized the agency’s ability to punish Computer Sciences Corp. for its wrongdoing. These internal political divisions among SEC Commissioners have recently become a more significant problem that has hampered the SEC’s enforcement arm and ability to keep corporate bad-actors in check. The SEC Commissioners, who were responsible for approving the settlement agreement that investigators had previously reached with the company, were divided by their political party affiliation. The Republicans voiced concerns about what they believed were overly harsh penalties, while the Democrats wanted to see more individuals charged.

The SEC claims that Computer Sciences Corp. both concealed relevant information from shareholders and deliberately made misleading disclosures to them. The SEC further asserts that the majority of the fraudulent activity arose out of a contract with Great Britain’s National Health Service. The activity primarily took place after the company came to the realization that it would lose money on performance of the contract because of an inability to meet deadlines contained in it.

In addition to the civil charges and fine against the company, five of the eight executives charged in the matter settled with the SEC. Particularly significant is that these former executives will return a large portion of compensation that they had previously received in their roles with the company, as well as pay a penalty to the agency in an amount totaling in the hundreds of thousands of dollars. The Sarbanes-Oxley Act provided the basis for the required return of the already earned compensation. The former executives, and the company itself, were not required to admit (nor were permitted to deny) the charges against them. The other three executives alleged by the SEC to be involved in the fraud continue to fight the charges.

As part of the settlement, Computer Sciences Corp. will adjust past financial statements that were implicated as being fraudulent in the investigation. The company is also required to hire an independent ethics and compliance consultant to provide oversight of the company’s accounting practices and internal compliance program. Many familiar with the regulatory enforcement arm of the SEC consider this a win for the agency as well as being representative of the agency’s ongoing commitment to enforcing securities laws and punishing wrongdoers.